The Moribund Petróleos de Venezuela (PDVSA)

Caracas, 9 May 2005 | Petróleos de Venezuela S.A., the state-owned corporation created as part of the nationalization of the Venezuelan oil industry in the mid 1970’s, is moribund. Once operating agreements and strategic associations for the liberalization of oil operations have been forcefully abrogated, PDVSA, as a corporation of a commercial nature, will have finally disappeared to make room for another corporation totally distinct in its social reason, its vision, its mission and its objectives. That is why comparisons among its different managements lack any practical sense, as that would be like counting apples and oranges together. The PDVSA of the nationalization period and the new PDVSA bear no resemblance to each other.

The principal difference rests on the fact that, after 2002, there has been an abandonment of the presentation of financial and operating reports, as is done by all corporations that answer to their stockholders in transparent fashion. They also discontinued holding ordinary assemblies for approving the budget and management and, when an extraordinary meeting is called, it is in order to meddle with the cash flow and to comply with the costly whims of a spendthrift government. For example, during 2004 three extraordinary assemblies were convened, only weeks apart, in order to establish an independent fund at Banco de Venezuela in the amount of $2 billion. The first assembly was for establishing it, and the two following ones for modifying it according to governmental requirements. To conclude this point, the stockholders' assembly, which supposedly represented all Venezuelans as owners of the oil, has been replaced by a sole stockholder, one who decides how the petrodollars are to be distributed without rendering any kind of accounts.

Another difference between the moribund PDVSA and the new one is in meeting goals. Starting with Héctor Ciavaldini’s administration, going past Guaicaipuro Lameda, Alí Rodríguez and now Rafael Ramírez, there has been a public presentation made, in Venezuela and abroad, of at least 15 different versions of a supposed business plan (now they call it a strategic plan), whose goals have never been met and whose more important projects have never materialized.

Another significant difference, in light of the loss of image and credibility, is that PDVSA, the moribund, has been submitted to a character assassination campaign, coming from the Government, as has never occurred before. This is a suicidal behavior that has done much harm and has put in question the corporation's ability to be run as a commercial enterprise. This campaign of character assassination and offenses has recently been shifted over to corporations that participated in the different modalities of the process of liberalizing the petroleum industry.

For some, it seems incredible that after being barraged with accusations of being despicable and deceitful, and tax dodgers, among other petty matters, these corporations have not responded. They do not and will not do so through the media, unless they are being accused directly, in which case their international image is being affected.

These companies keep quiet because the battle scene is on legal territory, where Venezuela has of late lost all the battles. They keep quiet because they have contracts with absolutely clear terms, and, certainly, their accounts are transparent. They are much too big to jeopardize their prestige, their market value and the trust of their stockholders by getting involved in a sleigh of hand in Venezuela over a few dollars. Anyone interested in the subject can verify the reports these companies present, without delay, before their stockholders and the stock exchange authorities at the Securities and Exchange Commission (SEC). These reports, when making reference to Venezuela, limit themselves to presenting operations and financial results, but always advise that they adhere to any signed contracts.

Since November of 2001, companies participating in the program to liberalize the petroleum industry have been subjected to pressures meant to have them migrate over to the terms of the new Hydrocarbons Law, which, we must warn, was promulgated by means of enabling legislation, without any discussion or national consensus (Decree No. 1.510.02). According to this law, the State is to enjoy majority participation in all "upstream" (exploration and production) oil projects. We ask, what has been offered to the companies to get them to change their contracts? It is something not known to public opinion; but what is certain is that they have not been able to convince the companies.

What would the Government gain if these companies were to accept? First, credibility for its erroneous oil policy and justification for what it has done with PDVSA. Second, with partners such as these, an opening for international financing on a large scale. Third, by using the work of others, the restoration of production lost by PDVSA through its inefficiency and lack of resources.

What will the companies lose if they do not accept the Government’s intentions? Even though they have been thinking it over for six months, following the latest set of deadlines established by Energy Minister Rafael Ramírez, the companies would be confronted with the nationalization of their assets. It is entirely possible and for the past few months they have been executing documents and preparing legal briefs and dossiers for presenting suits and seeking judgments from international jurisdictions. The amount of evidence collected is voluminous, just in having transcriptions made of the Hello President programs, with which they expect to demonstrate that they have been harassed, insulted, subjected to public mockery and threatened. That is why they do not speak up and allow others to continue vociferating ceaselessly. Outside of a courtroom, these companies will present their proof of contractual fulfillments only if given the opportunity to respond before the National Assembly, which is a legal venue. This only if the respective hearings should ever materialize.

Also it is possible the companies under the liberalization program are waiting for the Government to offer them more than they already have, even going beyond national sovereignty. It therefore seems highly contradictory, as Humberto Calderón Berti recently testified, that while the Government indiscriminately attacks the companies of the liberalization program for supposedly not paying their taxes and deceiving the Venezuelan people; on the other hand it surrenders to them the Plataforma Deltana, and offers to them the property overlying our petroleum reserves so that they can invest in the abandoned fields.

Then, where are we? If we are going to remove Chevron Texaco from the Orinoco Belt and from Campo Boscán, we would also have to do the same with the Plataforma Deltana. If we believe that Repsol does not pay, why then are we embarking on new deals at the governmental levels between Spain and Venezuela. The some occurs with Petrobras, Petrochina, ConocoPhillips and Statoil. If Exxon Mobil is the epitome of US capitalism, then what is it doing on the Orinoco Belt?

All of these companies as a group have turned into the second largest oil producer in the country and have invested $26 billion since 1994. Who is going to produce oil if these companies leave? Who is going to supervise in the event there is a massive surrender of the oil fields? A new PDVSA that has been unable to even present an audited annual report? We doubt it.

The PDVSA created after the nationalization succeeded in becoming the second largest oil company in the world, but has been unable to withstand six years of the Bolivarian Revolution. It is hard for anybody in this country to have not felt some kind of premonition prior to the publication of reports of corruption, sabotage, massive firings, drops in production, militarization of facilities, paralyzed refineries, among other important matters. But it is also hard to realize the enormity of the crisis hovering over us. Independent of the focus maintained in the various analyses by experts, politicians, and union leaders, there is sufficient reason to become alarmed because all of us, government and the opposition alike, are attached to that cash cow.

PDVSA has various complex problems, which are the product of a chain of mistakes that at this moment are erupting in a singular fashion, but which will not be late in converging and exploding, all of which is of extreme gravity; given that oil revenues are the backbone of the Venezuelan economy.

The consequences of a mistaken oil policy and the sum total of all the incompetence are visible for all to see:

-- Nothing has been invested toward the discovery of reserves in large enough quantities to make up for what has already been extracted from the ground. This is a vital activity for an oil company that intends to stay competitive in the long run.

-- Currently, production at PDVSA itself is hardly 1.6 million BPD, or perhaps less. That is to say, it has experienced a drop of 62% since the end of 1998.

-- The country lost the $47 billion that had been invested between 1990 and 1997 toward increasing production potential.

-- The production cost per barrel has gone up from $3.60 to $7.00.

-- In order to restore oil production to the level where it was in 1998, PDVSA would need to invest $7 billion a year for a period of not less than six years ($47 billion total), but the government’s fiscal voracity has hardly allowed it to cover costs and basic expenses.

-- The marketing and supplies team were practically obliterated and it is completely unknown how oil sales operations are currently being managed.

The presentation of audited accounts for the years 2002, 2003 and 2004 would be the most convincing way of demonstrating that the aforementioned is the product of a "media campaign" and that the new PDVSA is in good enough shape to guarantee the economic stability of the country and that in future it will respond in the face of an unfavorable oil market.